Investing in Pollution Control and Waste Reduction

In 2021, 120 world leaders and more than 40,000 registered participants attended the United Nations Change Conference in Glasgow, Scotland (COP26). For two weeks, discussions of the global climate crisis ruled the day. Discussions of current scientific trends, the range of potential solutions, and the priority of world leaders to act swiftly clearly showed that the climate crisis and the work of mitigating our negative impact on the environment are topics that all of humanity ought to be concerned about.

From an investment perspective, the global policies under way to reduce carbon emissions and promote healthy communities is one that simply should not be ignored. Below, we will look at the myriad of ways that savvy investors are looking to align their portfolios with the work of those who are trying to make the world a better and healthier place to live.

Tackling Pollution at the Source

According to the U.S. Environmental Protection Agency (EPA), pollution prevention is any practice that reduces, eliminates, or prevents pollution at its source. The EPA and other regulatory agencies can issue administrative orders-on-consent (AOCs) to the entity causing environmental damage, which requires the entity to resolve the damage.

Therefore, a natural goal of many investors is to target investment dollars toward companies and opportunities that are working to reduce the emission of greenhouse gases—more specifically, gases such as carbon dioxide, methane, nitrous oxide, and fluorinated gases, the roots of most human emissions to cause warming since 1950.

Greenhouse Gas Reduction

Much of the carbon dioxide that enters the atmosphere is a by-product of the burning of fossil fuels, solid wastes, trees, and other biological material. According to the EPA, the transportation sector generated 27% of 2020 greenhouse gas emissions, which was the most of any sector.

At the COP26 conference in Glasgow, a group of governments, automakers, and others signed on to an agreement to transition to 100% zero-emission sales of new cars and vans by 2040. In the United States, President Biden signed an executive order that would target 50% of all new sales of passenger vehicles to have zero emissions by 2030.

The global shift toward electric vehicles is one key theme that investors could look at when investing in pollution reduction. Manufacturers of electric vehicles, light detection and ranging sensors, batteries, and other critical inputs would be obvious choices for those looking to invest.

Electricity production produced approximately 25% of greenhouse gas emissions in 2020. Again, the shift toward alternative energy as a form of power is the primary focus of investors seeking to gain exposure to the long-term decline of carbon dioxide. Companies that specialize in energy derived from wind, solar, geothermal, hydrogen, and perhaps even nuclear power could be areas of particular focus for investors over the years ahead.

Another sector that is a top contributor to global greenhouse gas emissions is commercial and residential real estate. Construction of the various forms of buildings, along with the heating and cooling needs of homes and businesses, are another major source of pollution. In 2020, direct greenhouse gas emissions from homes and businesses accounted for 13% of total greenhouse gas emissions in the U.S.

Investors will look to technological leaders in heating, ventilation, and cooling because advancements in these areas will significantly reduce the environmental footprint of this segment. Related, investors likely also will look to innovators in the field of insulation, manufacturing of energy-efficient windows and doors, as well as lighting.

Waste Management and Recycling

With populations rising and the amount of refuse increasing, responsible handling, collection, and processing of waste are of growing importance. Investors have plenty of options in the public markets when it comes to companies that are leading the way toward a greener future in the areas of waste management and recycling. For example, Waste Management Inc. (WM) managed 143 recycling facilities and 244 active solid waste landfills. The company managed more than 15.5 million tons of recyclables in 2020, which was more post-consumer recyclables than anyone else in North America.

Billionaires concerned with the environment, such as Bill Gates, also know the important role that efficient waste management companies have in the global economy compared to the alternatives. On Feb. 24, 2022, Gates’s investment management company Cascade Investment LLC bought more shares of Republic Services (RSG) stock, making the firm the top holder with 109,812,574 shares.

The two companies mentioned here are two of the largest companies in the industry based on market capitalization, but as mentioned above, there is a gamut of companies to choose from across the public markets. For example, there are companies that focus on effective hazardous waste removal, refuse disposal, maritime waste services, pharmaceutical waste services, and various forms of recycling, such as those that focus on lithium batteries.

Exchange-Traded Funds (ETFs)

One strategy for identifying equities that are positioned toward a greener future is to look at the top holdings of a targeted exchange-traded fund (ETF), such as any of the 10 listed below. On the other hand, other investors—such as those who are looking for a diversified approach toward their investments—may simply choose to hold a position in one or more of the funds. All told, whatever the investment strategy, investors have many choices when it comes to gaining exposure to the reduction in pollution and effective waste management.

· VanEck Vectors Environmental Services ETF (EVX)
· iShares Global Clean Energy ETF (ICLN)
· Global X Lithium & Battery Tech ETF (LIT)
· Invesco Solar ETF (TAN)
· Invesco WilderHill Clean Energy ETF (PBW)
· ALPS Clean Energy ETF (ACES)
· Invesco Global Clean Energy ETF (PBD)
· VanEck Vectors Low Carbon Energy ETF (SMOG)
· First Trust Global Wind Energy ETF (FAN)
· SPDR Kensho Clean Power ETF (CNRG)

The Bottom Line

The shift toward a greener future is a top priority for many individuals, governments, and corporations around the world. Investors have many different routes to adding exposure to those working at reducing pollution and waste. Some may choose to buy shares of individual companies that are leading the way with innovative products and business models. Others may choose to invest in a diversified portfolio through the use of ETFs. Regardless of investment style and preference, pollution control, and waste reduction deserve to be macro-level themes that are covered within any portfolio.